Still Keen on Evergreen

Honey, that debt looks great on you.

In the three months ended June 30, Evergreen Solar(NASDAQ:ESLR) racked up around $22.8 million in product and fee revenue, a 48% gain over the prior year. So far, so good. Operating losses, meanwhile, more than doubled. Ouch o'clock. Margins are also poised to collapse next quarter. Half past ouch o'clock.

OK, why shouldn't this earnings release bother anyone particularly? Well, in my eyes, Evergreen is executing according to plan. 2008 is a capital-raising and spending story. Earnings are not a part of this chapter.

Last quarter I identified financing risk as my top concern, and Evergreen has since secured the convertible debt necessary to fund its capital expenditures. Whatever, say, the gross margin percentage happened to be in the quarter (34.7% for the curious), this sort of number takes a backseat to the $375 million raised.

Please don't misinterpret my dismissal of bottom-line results as giving Evergreen Solar a free pass. It's just not realistic to expect the company to crank out cash before meaningful scale is achieved. In fact, I would be highly skeptical of the company's future if it weren't for the differentiated nature of its proven technology and the stupendous supply deals it keeps scoring.

Just this week, Evergreen signed a massive $1.2 billion sales contract with IBC Solar. I've complained about every solar supplier known to man being identified as a "leading" company, but in this case such an appellation is apropos. IBC is identified in Evergreen's press release as "the largest PV distributor in the world."

Because of deals like these, Evergreen's planned capacity is booked quite solid. It's even sold out in the 2011-2013 time period. Perhaps you see why that financing was so crucial -- sales in 2012 may not materialize if you're strapped for cash today. If you don't build it, they won't come.

Here's the main thing that bothers me. Just like Ascent Solar Technologies(NASDAQ:ASTI), Evergreen went public way too early. First Solar(NYSE:FSLR) used to lose money, too. In those early R&D days, it was patiently nurtured, in private, by a venture fund controlled by Wal-Mart(NYSE:WMT) heir John Walton. Evergreen has instead publicly laid bare its growing pains over the years, which doesn't make those additional capital raises any easier. In that light, its latest fundraising feat is perhaps all the more impressive.

Evergreen is rated a so-so three stars in Motley Fool CAPS. Join the conversation on the solar upstart today.